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Charities and not-for-profit newsletter

The text of a recent address given by the Director General of the CRA Charities Directorate, Cathy Hawara, at the Canadian Bar Association National Charity Law Symposium has been published on the CRA website. Ms. Hawara addressed the changes that have been introduced in the 2011 and 2012 Budgets, and some of the steps that have been and are being taken at the Charities Directorate to implement and enforce these changes. While Ms. Hawara noted that the Directorate is still in the process of developing policies and protocols to deal with many of these provisions, her comments provide valuable insights into how the Directorate may interpret these provisions going forward.

The following are some of the highlights from Ms. Hawara’s remarks.

Budget 2011

Budget 2011 extended many of the regulatory rules that apply to registered charities to other qualified donees. Among other things, Ms. Hawara noted that several lists of “other qualified donees” have been made publicly available on the Charities Directorate’s website. These include registered Canadian amateur athletic associations (RCAAAs), recognized Canadian municipalities, prescribed universities outside Canada, and foreign charitable organizations that have received a gift from the federal Crown. We noted this development in the January issue of this Newsletter. Ms. Hawara noted that lists of municipal or public bodies performing a function of government and low-cost housing corporations for the aged are still being developed. Donors should consult these lists to confirm that prospective gifts are being made to qualified donees eligible to issue donation receipts.

Ms. Hawara also noted that the Charities Directorate website has been updated to include additional information on the new regulatory rules that apply to RCAAAs. RCAAAs should review this information carefully. Ms. Hawara also confirmed that the application to register an RCAAA, Form T1189, has been updated and the revised version of the form is now available on the Charities Directorate website. The annual information return for RCAAAs, the T2052, remains unchanged.

Ms. Hawara also commented on the new rules regarding “ineligible individuals”, which we have commented on in a past issue of this Newsletter. These rules give the Charities Directorate the discretion to refuse registration or revoke the registration of an existing charity on the basis of past conduct of any of its directors or senior management. Any director or senior officer will be considered “ineligible” if, among other things, he or she has been convicted of an offence related to financial dishonesty (or that is otherwise determined to be relevant to the operation of a charity), or was a director of an organization that was revoked in the past 5 years for serious and deliberate non-compliance committed while the individual was a director.

After summarizing the rules, Ms. Hawara commented on how the Charities Directorate would determine when an individual is ineligible. She emphasized that the Directorate is proceeding cautiously and that its policies for dealing with the new provisions have not been finalized. She noted that any past convictions for offences involving financial dishonesty would be considered relevant, and that any other past offences would be considered on a case-by-case basis with a view to whether the conduct, if repeated, could inflict harm on a charity or its beneficiaries. She also noted with respect to individuals involved with an organization that had its status revoked for a serious breach, that the Directorate is primarily concerned with deliberate non-compliance. She confirmed that charities are not required to conduct background checks on directors and senior management in order to demonstrate compliance with the new rules. She did, however, note that to the extent that a charity has conducted background checks or otherwise been made aware of concerns about an individual, failure to take appropriate action could result in the Directorate applying the new provisions.

Budget 2012

Ms. Hawara also commented on changes introduced by Budget 2012, beginning with the new provisions added to the Act regarding political activities by registered charities and RCAAAs. In particular, she commented on some of the additional reporting that would be required on the T3010 annual information return. She indicated that the following changes were being made to the T3010, with the updated return hopefully being made available beginning in 2013:

Charities that report having carried on any political activities will be required to complete a separate schedule. Charities will need to list the types of activities involved (e.g. media ads, demonstrations, social media campaigns) and explain the relationship between the political activities and the charity’s purposes.

Charities will be required to disclose the amount received from foreign sources for political activities. The information required to be disclosed will include the amount received, the political activities for which the donation was intended, and the country of origin.

Charities will be required to include information about the total amounts gifted to qualified donees that were intended for political activities. Charities will be required to indicate the dollar amount and to provide a description of the political activity.

Ms Hawara also noted that the 2012 Budget indicated that the Charities Directorate would be provided with additional resources with which to enhance education and compliance activities in the area of political activities. This will likely include more educational resources available on the Directorate’s website as well as more information sessions and webinars to help charities understand the rules. On the compliance side, Ms. Hawara noted that the Directorate would engage in more proactive monitoring, including the expanded use of books and records audits (as opposed to full field audits) to verify compliance with the rules regarding political activities.

Ms. Hawara concluded by summarizing the changes in the Budget regarding foreign charitable organizations to which the federal Crown has made a gift. She noted that such organizations would need to apply for registration as a qualified donee and would need to meet additional criteria for registration, including the possible need to demonstrate that their activities are in the “national interest of Canada”. Ms. Hawara stated that further guidance would be forthcoming, but cited an example of a hospital in Germany that treated Canadian soldiers wounded in Afghanistan as an example of a foreign charitable organization whose activities are in the national interest of Canada.

Conclusion

Although important questions remain about how the Charities Directorate will interpret and apply the changes in the 2011 and 2012 Budgets, Ms. Hawara’s remarks are helpful in updating the sector on the changes that have been made to date and on the expected steps that will be taken in the coming year. Charities should continue to pay attention to developments and new materials on the Charities Directorate website, as these are a key resource to help charities to understand and comply with their obligations. We will also continue to provide updates in this Newsletter as developments occur.

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